What Chapter 7 Bankruptcy Is All About

There are basically two types of bankruptcy proceedings.  One is called Chapter 7 bankruptcy and the other is Chapter 13.  Each type would have its own implications to both the debtor and creditor.

Chapter 7 is commonly described as liquidation.  This is because such proceeding allows for the sale of the non-exempt property or properties of the debtor.  The returns of which shall be distributed among the creditors under the supervision of the bankruptcy court. 

As compared to Chapter 13, Chapter 7 bankruptcy does not conceptualize a repayment plan.  Instead, the bankruptcy trustee takes charge of the gathering of assets as well as the sale and distribution of proceeds.  Although some assets may be considered as exempt, this particular type of proceeding may result to loss of property. 

In order to qualify for Chapter 7 bankruptcy, here are some of the conditions and requirements:

 The debtor may be an individual or a business unit such as partnership or a corporation.

 The debtor must not have any prior bankruptcy cases that were dismissed because of his intentional failure to appear in court or follow its orders. 

 180 days prior to filing, the debtor must have undergone credit counselling conducted by an accredited credit counselling agency.  This may have been conducted either individually or in groups.  Even with other bankruptcy proceedings, this is a major requirement.  However, in emergency situations or in cases where the bankruptcy administrator asserts that there is not enough accredited credit counselling agencies in the area, this requirement may be waived. 

A debtor may file for Chapter 7 bankruptcy regardless of the amount of his debts.  However, it is important that he has already analyzed his finances well before ever deciding to file for bankruptcy.  This is primarily because bankruptcy is not to be abused.  It is just an option in case all possibilities have already been saturated and bankruptcy is the one and only remaining way to salvage the debtor from his debts. 

Chapter 7 bankruptcy, just like any other bankruptcy proceedings, is a long process.  It may be briefly outlined as follows:

 The debtor files a petition to the bankruptcy court covering his area of business, residence, or the location of his major assets. 

 Together with the petition, the debtor files the following:

       a. breakdown of assets and liabilities

       b. breakdown of cash flow indicating income and expenditures

       c. statement of financial status and other transactions

       d. schedule of contract and active leases

       e. tax return or transcripts for recent tax year as well as the year of the filing of the case

 If an individual is filing for bankruptcy for debts that are consumer in nature and not business-related, these are the additional requirements that must be filed:

       a. certificate of credit counselling

       b. copy of debt repayment plan conceptualized during the counselling

       c. proof of income from employers that have been received 60 days prior to filing

       d. statement of monthly regular net income plus any expected increases in income and expenditures

 The court charges the following which may be paid in instalments by individual debtors:

       a. $245 case filing fee

       b. $39 administrative fee

       c. $15 trustee service charge

 The debtor completes the Official Bankruptcy Form by providing these information:

       a. list of all creditors and their corresponding claims

       b. details of his income

       c. list of assets

       d. list of regular living expenses

 20 to 40 days after filing the petition, a meeting with the creditors will be conducted by the case trustee.

 The debtor constantly cooperates with the trustee in giving necessary documents and information.

 The debtor is constantly informed of the consequences of filing for Chapter 7 bankruptcy.

 The debtor may switch to another type of proceeding but this may happen only once.

Indeed, bankruptcy, whatever the type may be, is a very tedious process requiring revelation of a lot of financial information.  Likewise, it has its pros and cons which makes it entirely necessary for a debtor to consider his options well before moving on to the process.